Online business models and findings from compliance reviews are the focus of OSC annual registrant report

Share

Stikeman Elliott | Viviana Beltrametti Walker  & Junaid K. Subhan | Aug 16, 2016

OSC staff notice 33-747 Annual summary report for dealers

An update on registration initiatives, including the registration of online business models, and current trends in deficiencies and acceptable practices of market participants are the focus of OSC annual summary report.

Trends in registration, including online business models, and common deficiencies identified in compliance reviews are the focus of the Ontario Securities Commission’s (OSC) Annual Summary Report for Dealers, Advisers and Investment Fund Managers.  The following summary highlights key points in the report. We recommend that market participants review in detail the portions of the report that may be applicable to their businesses.

Registration Initiatives

Online Business Models

The report addresses the OSC’s recent experience in dealing with the increasing number of registrants proposing online business models and offers some practical tips.  The OSC advises that firms proposing an online business model that is unique or complex should consider submitting a pre-file application. The same is true for firms that are seeking discretionary relief from registration requirements. In addition, firms seeking registration should be prepared to demonstrate to the OSC the proposed online portal/platform as part of the pre-registration interview.

The OSC also helpfully identifies some of the common deficiencies encountered in reviewing registration applications related to online business models. Notably, firms should ensure that they have carefully assessed the categories of registration that will be required, as many firms do not apply for registration in all of the registration categories that are applicable on the basis of their business plans and proposed activities.  In addition, policies and procedures must address the “unique aspects” of an online portal.

Equity Crowdfunding

The report addresses online crowdfunding portals under Multilateral Instrument 45-108 Crowdfunding (MI 45-108).  The OSC reminds exempt market dealers and investment dealers that in order to rely on the crowdfunding exemption, a Form 33-109F5 Change of Registration Information is required to be filed to update the business activities disclosed on Form 33-109F6 Firm Registration.  Entities that wish to register as an equity crowdfunding portal under MI 45-108 should be prepared to undergo a review which is similar to other firm applications, including interviews with key personnel of the firm.

See:  OSC Exempt Market Resources

Peer-to-Peer Lending and Other Lending Platforms

The OSC reiterates that “peer-to-peer” lending websites and other lending platforms that solicit lenders to fund loans and that match borrowers and lenders may require registration and that many such businesses have been identified as operating in Ontario without registration.  The OSC advises operators of such businesses to consider whether registration and/or prospectus requirements apply.

Terms and Conditions on Registration

The report also reminds online advisers that they are subject to the normal conditions of registration for a portfolio manager.  In particular, the report reminds online advisers that they must maintain an adequate number of advising representative and associate advising representatives to ensure that clients are provided with the appropriate level of service, attention and monitoring required in a discretionary portfolio management relationship.  The OSC refers to online advisers because of their tendency to have very low minimum investment requirements (or none at all) while, according to the OSC, conventional portfolio managers have historically had very high account minimums.

The OSC began compliance reviews of Ontario-based online advisers in early 2016 and is currently in the process of completing those reviews.  The OSC may publish additional guidance for online advisers, including the results of its compliance reviews.

Current Trends in Deficiencies and Acceptable Practices of Market Participants

The report provides market participants with an overview of common deficiencies identified in OSC compliance reviews.  We have highlighted key findings contained in the report.

  • Unregistered Exempt Firm - Changes to Registration Information. The OSC reminds unregistered exempt international firms, such as firms relying on the international dealer or adviser exemptions and non-resident investment fund managers relying on the permitted client registration exemption in Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers, of the requirement to keep the OSC updated of any changes to information in the filed exemption reliance forms, including contact information and CCO and agent for service details.  A firm must also advise the OSC in writing if it no longer has any securities business in Ontario and the date that it ceased to rely on the applicable exemption.

Continue to the full article --> here


The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

Share

Leave a Reply

Your email address will not be published. Required fields are marked *